PL Stock Report: Mahindra & Mahindra (MM IN) - Q1FY24 Result Update - Volume to ramp-up; segment margins to improve - BUY

Mahindra & Mahindra (MM IN) - Himanshu Singh - Research Analyst, Prabhudas Lilladher Pvt Ltd

Rating: BUY | CMP: Rs1,465 | TP: Rs1,760

Q1FY24 Result Update - Volume to ramp-up; segment margins to improve

Quick Pointers:

♦ Automotive order book at 281k units vs 292k in 4QFY23; sees some slowdown

♦ Capital allocation policy doesn’t change, will continue to invest in core business

We increase our FY24/FY25 EPS estimate by c13%/8% to factor in higher ASP, margin beat, higher other income. M&M’s 1QFY24 revenue came above our and consensus estimate, led by higher-than-expected ASPs at the Automotive segment. EBITDA margin at 13.4% came above our estimate of 12.7%, and largley in line with consensus. Management noted that commodity costs have softened and should support margins, coupled with better mix, operating leverage and price hikes. Suppply issues have normalised and MM is on track to reach 49k unit exit SUV capacity for FY24. MM noted no change in capital allocation policy and tried to calm investor concerns with detailed presentation on the same, which we think should help in investor confidence.

M&M should benefit from (1) growing customer preference for SUV, (2) ramp-up in production to fulfill strong demand and order book, (3) market share gains in the tractor industry from new segments, (4) ramp-up in EV portfolio starting 2025. Also, benign RM, operating leverage and end of volume of introductory priced model would benefit margins (we buil-in c160bps expansion over FY23-25E). Retain ‘BUY’ with TP of Rs 1,760 (18x on Mar-25E core EPS and Rs 360 for subsidiaries) vs Rs. 1,685 earlier.

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